Royal Bank (RY.TO)

It is a steady ship, one of Canada’s largest financial institutions. They are well managed, diversified, well balanced between their various business divisions. Today they don’t sell for as much of a premium as they used to. He would buy it on any pull back. They completed their purchase of City National Bank so that should contribute to earnings going forward They are reestablishing their footprint in the US again.

You can’t have a growing economy without the banks participating. They have been beaten up pretty badly over the last year or so. This one is a good risk/reward play. The fears, mostly outside of Canada, has been Canadian housing. Canadian housing will slow, but not crash. Also, everybody is worried about the banks’ energy exposure and exposure to Alberta. That has been pretty well contained. Feels this is the best in class on the Canadian division. They also have a very good investment banking department. You get the added bump with the City National acquisition that just closed in November and coming through in 2016.

The banking sector is undervalued. Within the sector RY-T has underperformed. She thinks concerns are manageable. They increased provisions for loan losses in energy, but they are still quite low. She does not think the Canadian economy is going into recession. You will see improvements in other sectors to offset energy. It is trading at an attractive valuation. 4.5% dividend and it was increased last quarter.

His model price is $78.90, an 8.5% upside. Unfortunately, there is big, big resistance at $74.30.

Doesn’t tend to be on his favourite list, but because it has sold off, the multiple is quite reasonable. They could probably up their dividend and do well. The largest Canadian bank. He doesn’t see huge exposure on the energy side. Has always been a well-run bank. Prefers others. (See Top Picks.)

Caller interested in a 3 year hold. It is a goodish term of hold. It is one of his favourite of the 5 big Canadian banks. They are getting a battering because people are generally against the banking system. They have all been punished.

Thinks banks are just going to be flat lining. This one looks okay in the high $60s and is currently in the low $70s. There is a whole pocket of support at around mid-$60 levels. This bank is at the top of the heap, so if there is one financial of all the financials that he would hold, it would be this. Doesn’t see a lot of downside, but also not a lot of upward movement. There is no reason to sell Canadian banks.

(A Top Pick Feb 10/15. Down 7.73%.) The banking sector has been down on a one-year basis. Thinks this is on concerns that the Canadian economy is going into a recession. The whole banking sector, including this one, is really attractive at this time. Trading at very low valuations. Gives you a yield of about 4.5%.

(A Top Pick Feb 25/15. Down 4.88%.) Still likes it and has been buying recently. When you can buy banks at 10-11 times earnings, with a 4.5%-5% yield, it is worth while. Banks have pulled back because of a number of factors, including worries about the economy and energy exposure. This one is a very diversified bank.

New Preferred shares? Thinks this is referring to one that was just issued that has an annual dividend rate of 5.5%. A nice new benchmark rate with about a 465 spread reset. This stabilizes the preferred market, and is one you can buy and hold.

(A Top Pick Feb 26/15. Down 13.63%.) Banks have been hit more recently, basically a matter of getting money out of the market. They are having pressure on the net interest margin side because of low interest rates. What is working well for them is the wealth management side and capital markets. (See Top Picks.)

Royal Bank (RY-T), Bank of Nova Scotia (BNS-T) or both, or should he wait? (His Top Pick is another bank that you must own!) Both these banks have big domestic retail and the cash from domestic retail gets reinvested into growth areas. In the case of this bank, it is primarily in wealth management and capital markets, more volatile businesses. He would do a half position on each, but wait.

He is inclined to think that regardless of oil prices, this bank will continue to make profits every quarter in the billions. We are not seeing any breakdown because of mortgages geographically.

Banks have been quite flat over the last year or so. When you are looking at PE ratios down to the 10 marker, they start to become somewhat attractive. But you also have to look at where the Canadian economy is going regarding oil prices and how it affects the banking sector. He likes this bank, but wouldn’t overweight the banks.

The valuations of banks are attractive. They are at the low end of their 20 year range. Canadian investors look at Canadian banks. They are secular outperforms and have beat the markets 75% of the time since 1970. When international investors look at Canadian banks, they see a high ROE with no recovery. Consumer debt levels have grown to a concerning level in Canada. They want some valuation upside through ROE improvement. They can’t do that because the banks are already too good. He does not think the next 20 years will be as good as the past 20 years. The same drivers that propelled the stock prices will not be there.